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May 16, 2025
$200 billion deal shifts US–UAE economic ties
AI and energy deal boosts dollar risk appetite
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In a surprise move to the markets, US President Donald Trump announced the signing of trade and investment deals with the United Arab Emirates worth more than $200 billion. The agreements cover energy, technology, and artificial intelligence, with a special agreement allowing Abu Dhabi to acquire the latest American AI chips. The forex market reacted quickly, with the US dollar seeing immediate support following the announcement, amid expectations that capital inflows from these deals would boost the US balance of payments. Since most components of the deal are denominated in dollars, risk appetite for the US dollar increased against other currencies, particularly the Japanese yen and the Swiss franc, due to the general improvement in risk appetite. |
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On the other hand, this deal may be seen as a direct challenge to China's technological influence in the region, adding a geopolitical dimension that could impact emerging market valuations, especially those linked to the Belt and Road Initiative.
Oil-linked currencies, such as the Canadian dollar and the Norwegian krone, may also benefit from this deal if it pushes forward new energy projects that will fuel global demand.
Overall, this deal represents a watershed event in the economic balance of power and could trigger a new wave of geopolitically driven volatility in the currency market.
Forward-looking:
With the continued positive news momentum surrounding the US-UAE deal, the US dollar is likely to maintain a strong tone in the short term, especially against lower-yielding currencies such as the Japanese yen (USD/JPY) and the Swiss franc (USD/CHF).
If there is increased talk of similar partnerships with other countries or significant progress in implementing AI and energy projects, we may see a broader wave of buying of the US dollar against a basket of currencies.
However, caution should be exercised regarding any geopolitical tensions with China that may arise in response to this alliance, which could return the market to a cautious stance.
Technical view:
Buying levels on the dollar remain favorable as long as there is no clear weakening in momentum.
The USD/JPY pair can be watched for buying opportunities on temporary declines, while monitoring geopolitical developments.